Gas trade summit is likely to criticize Russia

Prime Minister Putin has cancelled a scheduled visit to Bulgaria, where he was supposed to attend a natural gas summit. This may indicate that Russia no longer expects anything good to come of the summit; it has managed to quarrel with gas suppliers and consumers alike.

Prime Minister Vladimir Putin has cancelled a scheduled visit to Sofia, Bulgaria, where he was supposed to attend the “Natural Gas for Europe: Security and Partnership” summit. Also on April 21, the Kremlin jumped ahead of the gas forum and released Russia’s proposals for “a new legislative foundation for international cooperation in the energy sector.” This may indicate that Russia no longer expects anything good to come of the summit; it has managed to quarrel with gas suppliers and consumers alike.

Twenty-eight European and Central Asian countries, as well as the USA, will participate in the gas summit. The news that Putin doesn’t intend to go to Sofia was announced on April 21 by his press secretary, Dmitri Peskov. According to the spokesman, this is a conference for experts and does not require the presence of Prime Minister Putin. Instead, Russia will be represented at the forum by Energy Minister Sergei Shmatko.

The organizers of the Sofia forum – that is, the Bulgarian president’s administration – insist on calling the event a summit, implying that heads of state and government will be present. According to Bulgarian media reports on the morning of April 21, attendance had been confirmed by EC President Jose Manuel Barroso, Emir Hamad ben Halif of Qatar, Ukrainian President Viktor Yushchenko, and Russian Prime Minister Putin. Thus, the cancellation of a confirmed visit by the Russian prime minister may be regarded as an extraordinary event.

As the summit organizers stated yesterday, almost all EU countries and the USA will be represented: energy suppliers such as Russia, Qatar, Azerbaijan, Kazakhstan, Turkmenistan, and Egypt – along with current or potential transit nations such as Ukraine, Turkey, Serbia, Moldova, and Armenia.

Troika Dialog analyst Valery Nesterov says: “The last-minute withdrawal from this conference indicates that it won’t be making decisions that are favorable for Russia, so a top-level presence is considered unnecessary. Sending a lower-ranking representative will be sufficient for Russia to ignore any unfriendly declarations.”

Prime Minister Putin’s presence at the gas summit in Sofia could have been effective and justified if he could have presented Russia’s proposals regarding the document that is supposed to replace the Energy Charter Treaty. But this had already been done by President Dmitri Medvedev in the course of his visit to Finland on Monday, April 20. The relevant document was posted on the Kremlin’s website on April 21: “A conceptual approach to a new legislative foundation for international cooperation in the energy sector (goals and principles).” Thus, Putin wouldn’t have had anything new to propose at the summit. Moreover, recent statements from other participants in the upcoming event indicate that the discussion is unlikely to be pleasant for Russia.

For example, after meeting with Medvedev in Moscow on April 18, President Ilham Aliyev of Azerbaijan complained that his country is unable to export all of its gas due to unregulated relations with transit states. At present, there are two countries on the route to Europe for Azerbaijan’s gas – Russia and Turkey – and neither of them want to be transit states. Russia buys all of the gas that crosses its eastern borders and resells the gas at higher prices on its western borders. Turkey makes the same demands; they are the greatest obstacle to the Nabucco gas pipeline project.

Aliyev’s idea that Russia might become not only a buyer, but also a transit state for Azerbaijan’s gas (via Gazprom’s pipelines) is almost revolutionary. The noteworthy point here is that Russian law lacks the concept of “transit” – for gas, oil, or electricity. Moscow has always used this factor as an advantage in supplying gas from Central Asian countries. This circumstance explains Russia’s formal refusal to sign the transport protocol to the Energy Charter; it specifies that sale-purchase contracts must be signed by the supplier and the buyer only, while transit states should refrain from obstructing gas transit across their territories and should receive non-discriminatory fees for transit. Thus, if Russia did ratify the Energy Charter, this would enable the EU to buy gas directly from Azerbaijan or Central Asian countries, while Gazprom would lose its monopoly position and would collect only transit fees from those deals. Clearly, this issue may be raised directly at the Sofia summit – since the reluctance of Russia and Turkey to be transit states is the European Union’s greatest concern.

The “Conceptual Approach” document released on April 21 could actually be used against Russia in this context. It states that the basic principles of global energy cooperation should be “ensuring non-discriminatory access to international energy markets, opening up the markets and making them more competitive.” Taking these standards literally might imply not only that Ukraine should be a fair and transparent transit state for Russian gas, but also that Russia should do the same for gas from Central Asia or Azerbaijan.

Two other principles in the “Conceptual Approach” document may also be regarded as self-criticism; that is, an attack on Gazprom. For instance, it mentions the need to “recognize the security of supply (deliveries) and demand (transparent and predictable sales) as key aspects of global energy security,” and to “create and improve early warning mechanisms involving suppliers, consumers, and transit states.” In effect, these are exactly the principles that Gazprom breached in its recent conflict with Turkmenistan: the Russian company notified Turkmenistan only one day before drastically cutting gas imports.

Turkmenistan is hosting its own energy security conference on April 23, immediately before the summit in Bulgaria. President Gurbanguly Berdymuhammedov may leave for Sofia straight after the conference; his invitation was delivered by Bulgarian Foreign Minister Ivailo Kaflin a few weeks ago. Given the recent conflict with Gazprom, Turkmenistan certainly won’t side with Russia in the dispute with Europe. The government of Turkmenistan signed a long-term cooperation agreement last week with RWE AG (Germany). This will entail RWE developing gas fields in the Caspian Sea. RWE’s chairman of the board said in an interview with the “Neutral Turkmenistan” newspaper that his company’s goal is to help Turkmenistan deliver its gas to global markets. RWE CEO Jurgen Grossman said that ideally, gas from Turkmenistan should be delivered to Europe via the Trans-Caspian gas pipeline, bypassing Russia.

Deputy Prime Minister Igor Sechin is going to the Ashgabat energy conference on April 23 to clarify the situation. Last week, after Turkmenistan signed the agreement with RWE, Putin gave Sechin the assignment of “keeping Turkmenistan under control.” This conference will also be attended by US Deputy Secretary of State George Krol and Georgian Prime Minister Nika Gilauri. In fact, Gilauri has already stated that he will discuss prospects for connecting Turkmenistan to the White Stream gas pipeline project; this is supposed to run from Azerbaijan and Georgia along the Black Sea floor to Ukraine – bypassing both Russia and Turkey. The idea of such a pipeline was proposed a few years ago by Ukrainian Prime Minister Yulia Tymoshenko. Of late, it has changed from being a fantasy to a viable and fairly safe project – given that according to the recently-signed Brussels declaration, the EU may take over operations management for the Ukrainian gas transport system. The White Stream project is sure to be raised for serious discussion at the gas summit in Sofia.

So what we’re seeing is a situation where European gas consumers and a number of producers are prepared to use the Sofia summit to form a united front against Russia and Turkey. This would indeed be an extremely unfavorable forum for Vladimir Putin to attend. And he probably wouldn’t be able to distract the Europeans with Russia’s new “Conceptual Approach.”